HSBC's exit from its long-time investment in Ping An Insurance - China's No 2 life insurer - may not be a surprise to the market, but the buyer is big news.
HSBC, Europe's largest bank by market value, yesterday announced that it had agreed to sell its entire 15.6 per cent stake in Ping An to Charoen Pokphand Group - a powerful business empire based in Thailand and controlled by a Thai-Chinese family well connected to Beijing.
The purchase price was about US$9.4 billion, or at HK$59 a share, a 2.3 per cent premium to Tuesday's market close. Analysts said the price Charoen Pokphand Group, also known as CP Group, agreed to pay was higher than expected and seen as surprising amid concern about the mainland's weakening economy.
For Hong Kong- and Shanghai-listed Ping An, having a new major shareholder pay such a high price for the stake should buoy its share price, at least in the short term.
"We see limited implication on Ping An's operation as HSBC Holdings has not been actively involved in managing Ping An, while the confirmation of the stake disposal should remove a near-term overhang," said JPMorgan analyst Bao Ling Chan.
For HSBC, which already has its own insurance business on the mainland, the deal will allow it to book a net gain of about US$2.6 billion if the deal is completed, HSBC said. It has held the stake since 2004.
Market reaction to the offer was mixed. Some analysts expressed doubt that the Thai company would be a long-term holder. CP Group, known for its poultry operations, is already a big foreign investor on the mainland but it has so far focused on three main businesses there - agriculture, retail and real estate.
Financial industry sources said yesterday that CP was just one of more than a dozen foreign potential bidders for HSBC's Ping An stake in the past few months, including foreign insurers and private equity firms. CP entered into talks with HSBC about two months ago, the sources said. HSBC acknowledged in a stock exchange filing on November 19 that it was considering a sale, but gave no details.
CP's pro-Beijing background, in particular its chairman Dhanin Chearavanont's close personal ties to some Chinese leaders, helped give it the edge. Chearavanont, a Thai-Chinese, is known on the mainland as Xie Guomin. He is frequently referred to in state media reports as a "patriotic overseas Chinese", and is close to the powerful United Front Work Department of the Communist Party, whose mandate is to win support for China from influential Chinese diaspora.
"Although the seller is HSBC, Beijing, of course, has its influence and preference to decide on who can buy the stake," said one source who declined to be identified due to the political sensitivity of the matter.
HSBC said the sale would be completed in two stages. Most of the shares would be sold to CP in the second stage when the China Insurance Regulatory Commission gives final approval for the deal. At that time, according to a statement by HSBC, CP can secure its funding from the China Development Bank, a policy bank-turned major state-owned commercial bank that is directly led by the State Council, the nation's cabinet.
None of the three parties - HSBC, Ping An or CP - said how much money CP would borrow from the bank to help fund the deal. Some traders contend that the way the deal is structured, involving a guarantee from the bank, gives the lender a rare chance to eventually become a shareholder of Ping An in the event that CP can't repay the loan.
Additional reporting by Ray Chan and Jeanny Yu